This week it was all about central banks’ decisions and monetary policy statements. On Wednesday, the Fed in the United States held the headlines; yesterday was the Bank of England’s turn and today the Bank of Japan. As all traders know, when central banks talk, the market participants must listen.
By far, the most important of the three central banks’ statements was the one from the Fed. After all, this is the most influential central bank in the world, as it watches over the world’s reserve currency.
However, other central banks’ decisions may move markets, and the Bank of England (BOE) is such a bank. It was not the case with yesterday’s announcement, but still, the BOE’s communication was important for GBP traders.
BOE Keeps Bank Rate at 0.1% Unanimously
The bank kept the main rate and the asset purchase facility unchanged, to 0.1%, respectively GBP875 billion. There was no dissent, so the decision was unanimous, pointing to a unified Monetary Policy Committee (MPC).
On top of that, just like the Fed signaled one day earlier, the BOE said that it would not tighten the monetary conditions until inflation picks up consistently from the current levels. As was the case with inflation targeting in other jurisdictions, the BOE had a hard time reaching its mandate in the last years. Therefore, helped by higher oil prices, it is willing to let inflation rise to the target and perhaps beyond, before thinking of tightening.
The bank noted that the economic outlook remains unusually uncertain, given both Brexit and the pandemic. While the vaccination rate advances at full speed in the Kingdom, Brexit’s effects are yet to be seen in full display. We did have a clue about the decrease in trade with the European Union, in some cases the drop being as much as 40% for some categories of goods. If the trend continues, it will be a risk for future economic growth.
As mentioned earlier, the market was not impressed by anything the BOE said. The GBPUSD moved more based on what the USD did, while the EURGBP cross continued unabating its downward trend that started in the last part of 2020. We may say that the BOE was a non-event and that all the bank did was to ask for more time to analyze future developments.